I have done a little more research into the area I am looking at and have the following information.
Constructing a 10’6"x36’ will cost me a little under $40,000 installed. Have an actual quote.
Contacted Lamar about their rates on those size signs even though they were listing them for $2,100 month, they have a special where they are charging $1,500/month for 5 signs, so basically $500/month. Realizing if you only did one face it would be higher, maybe $800-$1,000
Contacted another company that has about 4 signs in the area I am looking at and they charge $700/month. They currently have half of their faces vacant.
Both charge about $800 for printing the vinyl and installing.
At this point I would be guessing to say I would pay no more than $600/yr for land lease plus at most 15% of revenue.
With a note of $40,000 for 10 years at 8% gives me a payment of $335 month. Figuring 70% average occupancy, this would be one side rented 100% and the other side 50% for the year, less around $4,000 annually for property taxes, electricity, income tax, and insurance would be a whopping $1,000 profit annually. This is with financing 100%. If I put $8,000 (20%), annual profit after taxes of $1,700, ROE 21.3%, CAP 13.7%. Of course this does not take into account the hours that I would work and what the hourly pay rate would be.
Before I spend anymore time or money on this I am looking for some feedback to see if I am looking at something incorrectly, or if I should give up on this area.
Great job on putting together realistic numbers. Your comps sound correct, as well as your assumptions. You have two assumptions that I am worried about: 1) does that $40,000 include the lights and panels and 2) the groundrent should be $x versus y%, not a base plus a percent.
What you are telling me is not that this is a lousy market (althought the vacancy sounds pretty bad), but that $40,000 is way too much to invest in such a timid amount of income. So look into the following:
the cost of a 12’ x 24’, maybe even on two I-beams or even wooden telephone poles
the cost of a 12’ x 40’ made out of wood and wooden telephone poles
See if there is some way to get the cost down to $10,000 to $20,000 and then re-run your numbers. I would call some of the big guys that build 12’ x 24’ kits (like Keeler) and see how low they can go to ship you a structure. I would focus on the 12’ x 24’ since that’s a standardized size and more likely to give you a better exit strategy.
I would also look harder at buying structures from people who have given up on the rental market, or existing abandoned signs.
You are in a market that is going to require “outside of the box” thinking – which many of them require today.
You are definitely on the right track, and, again, great job on coming up with accurate numbers.
i have built plenty of wooden pole structures. when available, we get used poles from a local utility company. they usually let us have them free just to get them hauled off…it’s a small town and we “know people”. we have to pick through the pile to find poles that suit our needs but the price is right. we use treated 2x6’s for stringers, galvanized pole barn nails to attach the stringers to the poles and 4x10x1/2" sheets of MDO for faces. granted, i only do the construction not the leasing and paperwork, but we can build a 10x24 non-illuminated back to back “vee” 5-6’ to the bottom of the panels for under 5K. you don’t need cat walks and we have even illuminated some of these. they are cheap to build and cheap to rent, which is attractive in todays economy. even if you have to buy new poles, you should still come in at way under 10K.
Keeler Iron Works does not make any wooden sign kits or components. But they do make steel ones. I suggested contacting the larger manufacturers because you can get crazy high bids on 12’ x 24’s somtimes from local fabricators who have never built one before, or don’t build them in quantity. A 12’ x 24’ “30 sheet poster” unit is capable of fairly inexpensive fabrication if done in quanitity – plus it ships really well on a truck. I have found that the cost of buying one of these from a national company and shipping to your city is often lower than hiring the local guy to build one. It’s no different than a homebuilder buying roof trusses from a factory two states away – they can be a whole lot cheaper to buy from someone who manufacturers them in quantity. I threw out Keeler because they are one, but there are several national fabricators, most of which are on the site. You can also use the steel “head” of the sign on wooden poles (make sure you have the engineering to support this theory), and you see that type of unit on the highway all the time.
Another way to find a cheap metal structure is to call every fabricator on earth and see if they have any old, used structures for sale. Sometimes you can get lucky. I once bought a 10’ x 40’ for under $10,000 using that strategy. Why would they have “used” structures? From units that were torn down by another billboard company and brought back and stored on their lot.
Make sure that any sign you build meets OSHA’s safety requirements. You can think “outside the box” – but never on safety issues. Stick to the law and you will be a much happier person.
Frank
Actually the numbers are worse than what I posted. I received another quote for a 12’x24’ and when I went to put in the new numbers I noticed that my interest rate had been deleted, therefore the numbers were actually worse once I put the interest rate back in.
The original quote was for the following structure:
10’6’’ X 36’ CM 15’ V 35’ OAH. – Monopole sign structure
Design conforms to 2003 International Bldg. Code 90 MPH >s.
Here’s an easy solution to a difficult question. It’s one of my favorite valuation devices.
Go ahead and tie up the location with a lease and permit. Do it for the maximum size of 10’6" x 36’ with monopole construction. Then offer to sell the lease and permit to Lamar and the other guys in town. See what happens. They will often show you their books in trying to reduce the price, so you will know what they truly are getting. And you might just get an offer that you can’t refuse. It’s a good sign that there is a LED at that intersection.
That’s the best way to get a true appraisal of what you’ve got. It’s free, and you have nothing to lose. If the deal is a stinker after further diligence you can cancel it, or sell it really cheap to a competitor.
I’ve done this many times, and it always works out well.